According to article 27 of the Political Constitution of the United Mexican States, the Restricted Zone is all land located approximately 62 miles from any national border and about 31 miles from any ocean. That same law establishes that no foreigner can acquire the direct title to the land in that area. However, Mexico’s Foreign Investment Law allows non-Mexicans to acquire indirect land titles in the Restricted Zone, by forming a bank trust in which the title is held or by creating a Mexican corporation which will hold the title to the property.
In this first part, David Connell, partner and manager of Connell & Associates, presents—in a general way—the procedures a foreigner must followed so that he/she can buy a property in the Restricted Zone.
Buying a Property through a Bank Trust
A trust is a three-party contract, where the seller (settler) irrevocably transfers real estate to a bank (trustee), where a third party (beneficiary) can use and enjoy it. Under Mexican law, only an authorized Mexican banking institution can be a trustee. As trustee, the bank has the title to the property, but the beneficiary has the right to use it as a convenience (as long as it is legal). A foreign buyer becomes the beneficiary of the trust in which the title is held and can designate additional beneficiaries or secondary beneficiaries.
The bank cannot encumber or sell the property without the express written consent of the beneficiary.
When buying a property in the Restricted Zone of Mexico through a trust, the “deed” will be the trust. A Mexican notary public then signs the trust and with this the transfer will be finalized.
A normal purchase transaction includes:
Some common terms of a Mexican bank trust are:
Buying a Property through a Mexican Corporation
Since 1995, foreigners have been allowed to own, operate and manage Mexican companies, but there are still some restrictions on certain activities (such as mining, airports and telecommunications), where foreigners are limited in the percentage of ownership they may retain of Mexican corporations. However, the general rule is that they can participate up to 100% in the ownership of Mexican entities, including Mexican corporations that buy and sell real estate.
Mexican corporations require a minimum of two members, of which both can be foreigners. There is no legal requirement to have a Mexican partner/member in an established Mexican corporation to purchase real estate.
There are different types of Mexican business entities; however, the two most common are the S.A. de C.V. (public limited company) and S. de R.L. de C.V. (society). Both the S.A. de C.V. and the S. de R.L. de C.V. are limited liability entities, and both receive the same treatment for Mexican tax purposes. However, some foreign governments (such as the United States) treat them differently, so it is important to find get advice from a U.S. tax attorney specializing in foreign investment on which entity is best for each case.
Forming and maintaining Mexican corporate entities represents much more expense than in other countries. All Mexican entities require monthly and annual tax returns. The corporation must hire an accountant to file the returns online as well as performing additional tasks, such as filling out the Investment documents including Foreign and, in many cases, Anti-Money Laundering documentation. Because of the additional services required and salaries paid to specialists, it can be quite expensive to set up and maintain a Mexican corporation as a foreigner.
If everything is done properly in either of these two options, as a foreigner there should be no problems in acquiring a property in Mexico.